Earlier this summer, global sportswear goliath Nike unveiled record profits and sales, marking its 50th anniversary year in style

The brand’s net income rose 6% to $6bn (£4.9bn) in the year to May 31, as sales climbed 5% to $46.7bn (£34.6bn).

As Nike emerges from the coronavirus pandemic seemingly stronger than ever, Retail Week Prospect analysts examine five things you should know about the sports giant.

1. Rebuilding momentum

Nike has enjoyed stellar sales performance in recent years, with growth only briefly interrupted during the Covid-19 crisis in 2020. In the year to May 31, sales grew 6% in constant currency to $46.7bn (£34.6bn) despite a challenging year in its Greater China region.

Nike chief executive John Donahoe heralded the results as a “testament to the unmatched strength of our brands and our deep connection with consumers”. 

Prior to the pandemic – sales slid 4% to $37.4bn (£30.2bn) in 2019/20 – Nike had built exceptional sales momentum, driven by its ‘Consumer Direct Offense’ (CDO) strategy, which launched in 2017.

 

The plan aimed to drive growth through the integration of its category, geography, marketplace, product, merchandising, digital and direct-to-consumer teams. A key pillar was its “triple double” strategy: to double innovation, speed and direct connections with consumers.

In order to double its speed, Nike launched the Express Lane programme in 2018, which quickly creates, updates and fulfils products in response to consumer demand. 

Donahoe says that by focusing on such areas, the business is “strengthening our competitive advantages and setting the foundation for long-term growth”.

Sales gains have been complemented by steady improvements in its pre-tax profit margins, which have risen from a low of 7.7% in 2019/20 to more than 14% in the past two years. This has been driven by increased full-price sales despite elevated freight and logistics overheads. 

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Nike’s immersive store concepts prove it is still very much invested in physical retail

2. Online offensive

Since 2020, Nike has also been benefiting from its Consumer Direct Acceleration strategy (CDA), which it launched that year. This “new digitally empowered phase” of its strategy was created to “unlock long-term growth and profitability”.

It simplified the group category structure into men’s, women’s and kids, while also beefing up its investment in technology to accelerate online growth. Nike has already radically scaled back its relationships with the third-party retailers it supplies, including cutting ties with Amazon in 2019, as it seeks to grow direct-to-consumer sales.

In the UK, Nike is noticeably absent from department stores such as John Lewis, and has become more selective about the products it offers to the likes of JD Sports and Sports Direct, but it still features heavily with the likes of Selfridges and Asos – two retailers prioritised for their varied customer demographics.

Nike’s online sales soared to more than $10bn (£7.4bn) in 2021/22, up 18% on the previous year. Digital has doubled versus pre-pandemic levels to account for almost a quarter of total brand revenue.

A key part of Nike’s success is built on its ability to bring its physical and digital channels together. Its immersive store concepts prove it is still very much invested in physical retail, yet bring with them the latest technology.

Its Nike House of Innovation, Nike Live and Nike Rise store formats all deploy different technologies to allow the user to interact in a hyper-personalised way.

Nike Rise, for example, which launched its first store in London in July, showcases how the brand uses technology in store to drive experience and connections with customers. Among many technological innovations in store, customers can use the Inside Track Table, an interactive footwear comparison tool where within seconds they can access reviews and real-time information on any pair of Nike shoes.

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Nike’s app ecosystem now drives almost half of all digital demand

3. An app for every occasion

A central pillar of Nike’s success has been its app ecosystem, which now drives almost half of all digital demand. Digital has many facets beyond transactional websites and brands need to focus on how they engage their customers outside of these norms.

The Nike app can recognise when a customer enters a store and provides the user with the ability to request items to be brought to them to try on.

NikePlus members have access to special Nike products, exclusive discounts, and partner rewards for their shopping activity within the Nike app.

Nike was also the first brand to sell with Snapchat, where thousands who attended an NBA after-party were able to scan codes to purchase and receive a pair of shoes the same night. Its entire stock was sold within 23 minutes. 

Donahoe believes such focus has allowed the business to emerge as “clear leaders in digital” within the industry. 

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In June 2022 Nike launched a collaboration with Gen Z favourite Jacquemus

4. Collaborate and conquer

Aware that the digitally native Gen Z customer is lucrative, Nike launched its collaboration with designer Jacquemus – a Gen Z favourite – in June 2022.

Posing a threat to Adidas’ Yeezy range – its collaboration with American rapper and fashion designer Kanye West – Nike’s tie-up represents a clever move.

The range launched exclusively on the Jacquemus site first and received more than 500,000 visits during the collection’s initial release. The website crashed under the weight of heavier-than-usual traffic and the stock sold out within 30 minutes.

While the collaboration launched on Nike’s site later in July, it served to engage the Gen Z demographic and builds on previous collaborations with high fashion houses such as Gucci.

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Nike’s physical presence complements the metaverse

5. Making moves in the metaverse

In keeping with one of its earliest advertising campaigns, ‘There is no finish line’, Nike is keeping one eye firmly on the future. 

In November 2021, Nike joined forces with online gaming platform Roblox, which boasts more than 200 million active users, predominantly under the age of 16.

In partnership with Roblox, Nike created a metaverse space, dubbed Nikeland, offering a digital environment “for Nike fans to connect, create, share experiences and compete”.

Nikeland is free for anyone to visit, something that Nike sees as pivotal in breaking down one sport’s largest barriers – access.

With a physical presence complementing the metaverse space – an immersive world in its Nike House of Innovation store in New York – the blending of physical and digital worlds showcases the company’s commitment to creating a “seamless consumer experience”.

The space, hosted in conjunction with Snapchat, allows users visiting the kidswear floor to access a lens that transforms the area into an AR version of Nikeland.

The metaverse offers brands an opportunity to drive innovation and loyalty, with the likes of Adidas and Burberry also dipping their toes into this emerging route to market.

Having already registered multiple patents, Nike will continue to push new boundaries and target multiple generations through the metaverse. Many more brands will undoubtedly join the conversation in the years to come, but Nike is determined to steal a march on its rivals. 

Strengths

Strong brand awareness – Nike is one of the most recognisable brands in the world, with its widely-known slogan and a logo adorned by world-class athletes. Nike is one of the largest footwear companies on the planet, boasting more than 30% of the market. 

Loyal customer base – Nike has a loyal customer base across many sports and also in lifestyle. The brand has worked with athletes to develop the best performing products and with cultural icons to create some of the most sought-after fashion pieces.

Low manufacturing costs – As the majority of its products are created in countries such as Vietnam, China and Indonesia, Nike has a relatively low cost base which affords it solid margins and provides ample funds for reinvestment into technologies and product development.

Product technologies – Nike has developed some of the best performing footwear and apparel technologies, so good in fact that its Vaporfly and Alphafly shoes were considered “technical doping” by sports governing bodies and almost banned from the Tokyo Olympics.

Store investment – Nike continues to innovate in-store, utilising technology to enhance customer experience, giving those who use its apps a hyper-personalised shopping experience. The seamless integration between its apps and stores proves the retailer is very much invested in an omnichannel approach.

Weaknesses

Wholesale importance – Whilst Nike is working towards increasing its direct-to-consumer sales, 57% of its product sales remain on a wholesale business to other retailers, which reduces its control of the customer experience and complicates its product distribution strategy. In 2021/22 this declined 1% in constant currency.

Inflated inventory – At the end of 2021/22, Nike’s inventory levels grew $8.4bn (£6.6bn), driven by ongoing supply chain disruptions. These issues have seen the group share price performance challenged, currently down a third since the turn of the year.

 

Opportunities

Nike Consumer Experience – Nike outlined its plan for growth in 2017 and promised to double its “direct connections with consumers” as part of its Nike Consumer Experience strategy. The brand is focusing on direct-to-consumer sales and as a result will work closely with just 40 wholesale partners, down from 30,000 previously, which could deepen its relationship with its remaining suppliers and customers.

Overseas growth – Nike remains reliant on the US market to provide the bulk of its revenue; however, this provides it with scope to grow its share in overseas territories. Particularly as it is now focusing on direct-to-consumer sales and has better control over the relationship it holds with its customers.

Metaverse – Nike appears invested in continuing its digital reach, having expanded into the metaverse with a partnership with Roblox. It also acquired RTFKT, a company adept in NFT design, blockchain authentication and augmented reality. In April 2022, Nike and RTFKT launched their first digital trainer NFT.  The metaverse represents an opportunity to drive loyalty, and introduce the brand to future generations, locking them in at an early age.

Threats

Highly competitive market – Footwear, which is Nike’s largest revenue stream, is a highly competitive market and it is up against tough competition from the likes of Adidas, New Balance and Asics.

Dependency on the US market – Nike has established itself as a global brand, however it still relies on the US to provide over 40% of its revenue. A drop in consumer appetite in this territory could cause a significant downturn for the brand.

Sponsorships and influencers – Adidas maintains one of the most popular design collaborations with artist Kanye West, whereas Nike holds a deal with the lesser known but still popular Travis Scott. Nike has used influencers effectively, but Adidas has differentiated its sponsorship strategy by working with sustainability charities such as Parley for The Oceans on high-profile products and as such is held in better regard in this arena. Its recent Jacquemus collaboration may, however, start to turn the tide.

International instability – Nike is at risk from political or economic instabilities in its major markets of China and the UK. It is facing ramifications from the strained relationships between the US and Chinese governments, which could impact consumer sentiment in the Asian territory. As well, the brand could be hit by instabilities in countries where its manufacturing takes place and this could devastate its supply chain if mitigation plans are not in place.

Footwear reliance – More than 60% of Nike’s revenue comes from its footwear category. With high ASPs in this area,  growth in apparel could stem any losses should consumers cut back on purchases as the cost of living bites.

 

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